Q&A - Buyside Equity Research Analyst/PM
Recently promoted from Equity Research Analyst to Portfolio Manager.
Happy to answer your questions about career path, recruitment, the role, buy-side vs sell-side, etc..
I am based in New York.
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Career Resources
Thank you for taking the time! Would love to hear about your career path as well as what initially drew you to Equity Research.
I started out as a summer research intern in Emerging Markets Equity in New York. Got my return offer and started out in Hong Kong. Then moved back to New York to join a Global Equities team where I work now.
I was not sure I wanted to do finance and casted a wide net. Buyside Equity Research resonated with me the most among the offers I received.
As an international student, my internship opportunities were quite limited as not many companies are interested in sponsoring a work visa. Finance/consulting/tech were pretty much the options I had. I don't code and in my year finance recruiting wrapped up before consulting began. And then the rest was feeling my way as I go.
Definitely got lucky that where I landed is where I want to stay.
Hey, thanks for the post. Have a rather philosophical question for you - how do you think like a buy side analyst?
I understand the basics (at least, i think i do) - what makes the stock price go up/down, what’s being priced-in/not, what’s the company about, where do we see further up/downside etc. but how would you go two steps further in your thinking/analysis? When I listen to the seniors talk about a stock they’re pitching, it makes sense and I get what they’re talking about, but when it comes to my own work, I find it difficult to bridge that gap between ‘facts’ and ‘analysis’.
Would love to hear your perspective on this. Thanks!
I'm only an intern but will be going into my 3rd year on the buyside - and last year before Ft. That being said, the biggest thing that has helped me through this process is being willing to continuously learn. What I mean is: Stay curious and committed to learn from every opportunity you get. A great example is when you hop on calls with management or sell siders. Just because you don't get to talk or lead the call doesn't mean you cannot pick things up. Hone your BS meter, you learn pretty quick how to differentiate between management/sellsiders speaking a company up - and being genuine. You would be surprised on how something as simple as reading the Economist/WSJ/Factset daily brief everyday will improve your knowledge on what might move a company.
I think people also sleep on taking as many econ courses as they can in undergrad, but maybe I'm biased.
The investment landscape is always evolving, so it's essential to stay updated on trends, emerging technologies, regulatory changes, and new analytical techniques. Seeking out mentorship opportunities is also huge.
1. Think Holistically: Go beyond just understanding the financials and industry dynamics, consider the broader macro and how it might impact the company's performance. Factors such as interest rates and how they impact xyz, consumer trends, regulatory changes, and geopolitical events can all move the needle.
2. Qualitative Factors: Don't overlook qualitative factors like management quality, corporate culture, brand reputation, and competitive positioning. Something as simple as Glassdoor reviews can give you valuable insights. These aspects can be just as critical to a company's long-term success as its financial metrics. Conducting thorough research and engaging with people across the spectrum is SO helpful, at least to me.
3. Understanding Market Sentiment: Analyze market sentiment and investor psychology to gauge how stocks are being perceived and priced. This involves keeping abreast of news, analyst reports, investor presentations, and social media discussions related to the companies you're interested in, when I can't find something about why a company might be down x%, you can often find discussions on X.
Just my two cents. Hope this might help someone :)
I consider facts to be any historical data, and any forward-looking market consensus on the stock. Analysis is the value-add I bring to the table.
Is the market consensus right or wrong? Why? In which direction?
Which component of it is wrong? Is it the sales growth? profit margin assumptions? dividends/buybacks? cash flows? Is it on the right valuation/multiple?
A buy-side analyst's job is to be better than the market at calling the buys/sells of the stocks under their responsibility. What do I know that the market doesn't? What am I thinking about that the market is not? What is the market worried about that I don't think I should be?
If I am right then the stock price will move in the direction I forecast over time.
I look for what my hypothesis is for whey the stock should be valued differently from the market today and I look for evidence to support or dismiss my hypothesis.
Hope this helps.
Thank you for the Q&A, I interned recently at a >$1B MM HF and a large long-only fund in one of their subsidiaries in NYC as an ER intern.
I’ve known for a while that I wanted to work in buyside ER after graduation, but the job market has been tough. Exhausting my efforts but still stuck without a FT offer.
Any advice when it comes to exploring as many opportunities as a college senior?
The number of job openings for buyside is lower than on the sell-side so it is naturally rarer to land a buyside job than a sell-side job. Internships are less structured and less common. It is extremely rare for buyside firms to recruit straight out of college unless it's a return offer from internships. Most buysiders start out on the sell-side and then move over with a few years of experience.
I wouldn't shy away from securing a sell-side role (especially ER) with the idea of switching over later in your career.
That said, people on the buyside appreciate hustle. Most of the investment roles on the buyside requires a significant amount of initiative and there's very little of hand holding/telling you what to do. This means just having the nerve to hit someone up asking for a coffee chat or a job has a higher chance of being viewed positively. Even if they don't have a job for you today, there is a chance they will remember you when you come knocking again.
Appreciate the Q&A! Did you have experience on the sell-side? I would love to hear your perspective on the role of sell-side in your day-to-day? Also, how can someone on the sell-side start to prepare or shift their framework to be a better candidate for buyside opportunities/what are some of the things you look for in a new hire?
I have always worked on the buy-side. But I have plenty of friends/colleagues who started their career on the sell-side and I interact with sell-side analysts on a daily basis.
Most of my day is spent on a small number of investment ideas (or sometimes one idea). A big chunk of that is reading - and a large portion of that chunk is sell-side research. I spend at least a few hours a day on meetings, sometimes internal meetings to discuss investment ideas, sometimes with sell-side analysts so I can ask questions about stocks I am working on, and sometimes meeting with CEO/CFOs of companies I am looking it. Sometimes I spend my time just playing around with my own excel model or a model I had a sell-side analyst send to me. I end my day by planning for my next day, or the next week. Scheduling meetings in advance and preparing things I will need.
The biggest mindset shift is (1) the increase in control over your own time and the expectation that you best utilize it (2) getting discouraged from spending a lot of time on a stock that will just be a "hold"/"equal weight"/no strong opinion and encouraged to focus on ideas with the highest upside to buy or worst downside to sell. (3) Having the power to setup calls with very senior sell-side analysts and CEOs of companies and needing to not be shy to use it.
So the biggest quality people look for is the ability to be a self-starter and a hunting instinct. There is limited training and you are expected to teach yourself on the job. Courage, hustle, curiosity.
Good luck!
Congratulations on the promotion and thanks for doing this. I understand that there has been a lot of headwinds on fund flows in LOs (Passive ETFs, Alternative Assets), which are also headwinds for career progression towards a PM. Curious to know how long it took you to become a PM, and if you think the next 10-20 years will be easier to progress from an ER analyst to a PM? Thanks again!
Thanks! It took me less time than average. Most people take 10+ years, but I got lucky by getting to work as an analyst dedicated to the portfolio early on.
Long-only bias, but people (myself included) believe passive ETFs and Alternative Assets can't replace LO. I can give you a whole hour on it but it basically boils down to our belief that indices are backward looking - so buying an index means you are assuming that the winners of yesterday will be the winners of tomorrow. That has been true in the last several years but there are plenty of historical precedents why it would not last. A combo of passive ETFs and Alternative Assets dismisses the chance of striking gold by finding the winners of tomorrow within the public equity space and making big bets on them.
Will it be harder to progress to PM from ER over the next 10-20 years? Now that alternative investment options to LOs are more visible/accessible/viable than in the past, I expect elevated competition for capital over the next 10-20 years than the last 10-20 years. Which means uncompetitive shops/strategies will close down/downsize which lead to fewer jobs. Ultimately though, I believe if you are good enough you are good enough. And if you are not good enough, you won't be allowed to linger as long.
That’s an interesting take on Passive ETFs. Just a follow up on this, if you have a minute: do you think that Active ETFs will actually drive incremental inflows to LOs and active management in general? Or will it just cannibalize other channels like mutual funds?
An ETF is just a vehicle. So an active ETF is in practice a mutual fund that trades on the open market.. Both are directed by investment managers making active decisions. Yes it will cannibalize your traditional "mutual funds" but it won't cannibalize the broader pool of capital going to "active management" since it is a part of the pie.
For someone who is interested in investing / buyside and wants to get better at investing and modeling, what tips would you have?
I have been trying to follow a couple companies and develop theses on them. Is it a better use of time to go generalist or pick a specific sector to cover?
Lastly, any advice on picking between focusing on LO or L/S?
Interested in LO vs. L/S too
Thanks, already answered this in one of the lower responses - not sure why it wasn’t tied to this thread.
Feel free to ask a follow up.
What does this mean in terms of the companies you cover.
1. you cover EM equities (so asia/latam equities), but you are based in nyc
2. you move to HK, so now you cover HK/mainland china equities
3. you return to nyc, where you cover global equities - so is this now EM equities + DM equities (think like NYSE, LSE listed ones)
Internship - I was given the task of finding an investment idea within the automotive industry or its adjacencies. I didn't cover any security as all my time was spent looking for that one idea - although it does involve looking at 100+ companies to begin wtih.
HK - I was assigned to cover Chinese Equities across all sectors. It was technically a generalist role but I found myself focusing a lot of my time on technology and consumer sectors which was where I thought the more interesting ideas were in.
NY - Global Equities is defined as any stock listed in any stock exchange anywhere in the world. So Yes, EM + DM. I was given a generalist role and now I look at all sectors.
It depends on what your starting point is. But overall I would keep in mind that investing in any public security is about finding answers to 3 questions: What are the bulls saying? What are the bears saying? And where do you stand in that debate?
Assuming you are starting from zero, I would begin by familiarizing yourself with all the terms that get thrown around in investment discussions you can begin to answer the first two questions. An earnings transcript of a well-known company is a good place to start. A well-known company is likely to have a lot of bulls and bears saying their piece - whether that's a wall street analyst or someone on youtube.
Where you stand on the debate requires you to understand what the company does and have a financial forecast. Modeling helps with this so I would start by watching a few tutorials and then try it out yourself. Find the 10-K of a company, input the numbers in excel and try to make a forecast. Ask yourself which assumptions you want to use and why? How would defend your assumption if someone challenges you? And then find someone to challenge you on those assumptions!
All of this happens at an accelerated scale on the actual job. You have a lot of tools that make accessing other people's opinions and creating your own models much faster but the core of it is the same.
I am a firm believer that good generalist needs to first be a specialist. The skill to be able to sift through the details is a prerequisite to the ability to discern what's important to focus on at a bigger picture level. Pick a sector that interests you to begin with.
I wouldn't worry too much about LO or L/S since they both require similar skill sets. The only difference is that for L - you just have to be right at some point and your investment gets paid. For S - you have to be right in that moment for you to get paid. It becomes a conversation for later on but both share the common foundation of an investment skill.
Congrats on the good news and appreciate the Q&A. A few things:
1. What would be a good pathway to a PM? I see a lot of people getting particularly specialized in the beginning of their career, but how is the path to get generalized?
2. What usually is the compensation structure?
3. Any good sources of info/analysis/news you would recommend to a newbie?
Thank you very much for your time, and I wish you have a good weekend ahead of you.
Thanks! Most shops are setup with one of these two models (1) a research platform where the analysts provide recommendations to multiple portfolios (2) siloed portfolio management teams with their own dedicated analysts. OR a combo of both.
There is no one uniform pathway but you generally start out looking at one sector and want to end where you’re looking at multiple sectors and spending the majority of your time working with one portfolio/strategy. Once you develop a good enough stock picking skill and relationship with the team, there will eventually be an opportunity to step up into a PM role for that team. Not every analyst makes it.
Comp - you get paid a standard salary and then a huge bonus if you do well. Your bonus will either be an agreed percentage of the revenue your strategy generates for the firm (via management fees) or a discretionary bonus but both have direct correlation to your performance. On my case, my salary is the same post promotion, but I know the upside to my bonuses is much higher than before.
news - bloomberg is a good source to keep tabs on. Since pretty much all buy side PMs have Bloomberg and we all see Bloomberg news daily.
Info/analysis - for learning purposes the best source of information is a more experienced investor. But to have a good convo with them you’ll need to know at least a few stocks in pretty good detail. Find books about companies and company founders/ceos every chance I get. I find investment podcasts that are focused on company analyses - avoid the ones that just talk about stock moves next few weeks. Business Breakdowns is a good podcast to start learning about how investment professionals think about companies.
Your goal in consuming these information is to think - how does this company make its revenue - is it trying to grow its sales or taking a cash cow approach? Why? What makes up its cogs items, op margins, what is the margin trend, why? Does it distribute dividend or do buybacks, why? Then it take your understanding and ask the more experienced investor how he/she values the stock, what multiple/target price would they give it? Their answer will contain elements of the things you have looked it and you can then get the convo going from there.
In a nutshell, That’s how I learned about stocks.
Hey! Each place will have their own system, but in essence it’s just research analyst and PM. Some places have a transition role labeled junior PMs etc. where they’d want to see how you would function as a pm before giving you the title.
At some places when you’re fresh out of college you might a junior to an analyst sometimes called an associate where they’d want to see how you perform as an analyst before handing you that title.
At the shop I’m in, progression is less quantified. My journey was quite organic, one PM team took more interest than others in ideas I was pitching, and before long I was spending more than 80% of my time with them. Eventually they asked me to join the team officially as a dedicated analyst working only with them. As I got more intimate with the team’s philosophy and get better at stock picking the team started acting on my recs at a near 100% rate. And after a while, they started trusting me to make decisions on the stocks l looked at. And then eventually the PM title came.
Bottom line is, get to a point where you’re a full fledged research analyst. Do well at your job, and find opportunities to work more closely with PM teams you’re interested in. Because there is often not a defined structure - you just have to hustle your way through and carve your own path.
Thanks for the response,
Just to follow up, I was wondering what career progression looks like after being a PM?
Do people enjoy their work?
Have heard (particularly with non-LO funds) that a lot of smart people simply see it as a great opportunity to retire early.
1) How often does this materialise?
2) Is there a clear distinction between those who have a love of a game vs compensation when performance is evaluated?
thanks!
LO funds have the impression that it has stable job security especially relative to L/S and HFs so people in those industries sometimes see LO as a way to lower their workplace stress. And when you decrease the amount of effort you have to put in - some people call it early retirement.
Personally, I don't think that's true. It may have been true in the past where LO jobs are plentiful relative to the number of people who want them. But that is less true today especially with increasing competition for customer's capital (see my earlier responses) and continuous inflow of talent in the buyside.
If you can't raise/maintain assets, then you don't have income - this statement is as true for HF as it is for LO. Especially if you are a PM or part of a PM team.
If you are an analyst not dedicated to a PM or strategy, you maybe less impacted but you are still in trouble if the overall shop struggles.
At my shop, about 10% of senior ppl (Director and above) get let go every year due to poor performance so it is not a place you can cruise and expect to keep your job.
Ultimately, those who love the "game" of investing will end up doing better than those who see it as an "early retirement" option and those with an early retirement option gets the boot.
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